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Consumers have filed a class-action lawsuit against Visa. They are accusing the credit card giant of negligence in addressing security vulnerabilities that make its prepaid "Vanilla" gift cards susceptible to a card draining scam.

 The lawsuit, led by Ira Schuman in the White Plains, New York federal court, alleges that Visa, along with Vanilla card issuers Incomm Financial Services and Pathward Financial, failed to implement adequate security measures.

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Background: Card Draining Scam

The scam used on the Vanilla gift cards is known as “card draining.” Since 2022, 73 million Americans have fallen prey to similar gift card scammers.

The was a 50% increase in reported gift card swindles in a 2023 report from the Better Business Bureau.

Schuman, a resident of Scarsdale, New York, initiated the proposed class action after discovering that the eight $500 Vanilla cards he purchased as holiday gifts for his employees in 2022 and 2023 had been emptied. 

The complaint highlights that these non-reloadable debit cards, commonly sold at major retailers like CVS, Target, and Walgreens, are packaged in thin cardboard sleeves that thieves can easily open, record account information, and reseal without detection.

According to the lawsuit, the perpetrators then monitor the official Vanilla website (http://www.vanillagift.com) to track when money is loaded onto the compromised cards.

Subsequently, they use the stolen account information to make unauthorized purchases.

Liability Issues

Schuman argues that Visa, Incomm Financial Services, and Pathward Financial were aware or should have been aware of the cards' vulnerability to tampering but did not implement necessary security features.

Furthermore, the defendants allegedly failed to provide refunds to victims when funds were stolen.

None of the Visa defendants have yet to respond to the lawsuit, it comes on the heels of a similar legal action in November by San Francisco City Attorney David Chiu.

Chiu's lawsuit targeted Incomm and Pathward, along with two card issuers, over the Vanilla cards, though Visa was not named as a defendant in that case.

The current lawsuit is grounded in accusations of violating New York state laws against deceptive and unfair consumer practices.

Damages Sought

 It seeks compensatory and punitive damages for individuals who purchased Visa-branded Vanilla cards in New York since January 30, 2021, and experienced funds being drained from their cards.